Global Warming Conference: Luncheon Remarks

MR. SMITH: I think when some of you, when you saw the program and realized our luncheon speaker was going to be a representative of Australia, might have been a bit surprised. Those of you more aware of the global politics of the climate change debate I think would be understanding why we did so. The nations of the world, as we've heard this morning, and will hear more this afternoon, have the potential of being extremely harmed by the various types of naive policies being promoted under the global warming fear stories we're hearing.

Most nations have temporized in that effect, or in some cases have actually moved to aggressively endorse this. One of our leading vice presidents has made the point that global warming will have its winners and its losers and maybe its time for the developed world to have its losers. Not normally the approach we like to see our — the representatives of the American people take. But, one Prime Minister, John Howard of Australia, has taken an extremely forthright position. He's looked at the issue of global warming. He's tried to understand what its implication would be for the Australian people.

And then he went one step further, he actually spoke out and stated what he felt would happen and why he felt that it was not in Australia's interest to move precipitously ahead on a course that seemed to offer for very little gain and much pain to the Australian people.

Later on this summer, in mid-August, there's going to be a conference of this type in Australia. This August the 18th through the 19th. We've been involved with that with our friends from the Senator Wallop's group, Frontiers of Freedom. Myron Ebell here representing that. And there will be a number of U.S. politicians and representatives at that meeting, trying to carry on the debate in the Australian subcontinent also.

To represent the Australian perspective here today, we're honored to have Paul O'Sullivan, who is a minister and deputy chief of mission. I think that's like my executive vice president.

You're the one who actually does most of the day to day work in the organization.

His background is that distinguished one we often find in people of this type. A large number of secretarial positions, which I hadn't really realized start from third secretary and move up to first secretary, which I guess means your penmanship was very good. I'm not really sure there. But, his understanding of this issue is quite well — quite good. He has been in trade policy, as it was referred this morning, trade policy is highly interlinked with the type of enforcement mechanisms we're likely to see in the global warming debate.

I could talk a lot about some of the details of his career. But I think we're much more interested in what he has to tell us today. So please welcome Paul O'Sullivan.


MR. O'SULLIVAN: Well, thank you, Fred. And good afternoon, ladies and gentlemen. And thank you for inviting me to come and share lunch with you and speak to you today.

As many of you would already know, following the recent visit to Washington by our Prime Minister, John Howard, Australia is taking what we consider to be a forthright and realistic stance in its approach to the current climate change negotiations. And the reasons for this approach are simple and compelling. I'd like to discuss them with you today.

Australia, like everybody else in the negotiations, wants a good outcome for the global environment. But, we are not prepared to accept an imposed result, at any price. And nor should — if I may say so, nor should the United States or any other nation accept a result at any price. The only emission reduction target on the negotiating table at the moment, the one being pushed by the European Union, would impose a cost to Australia and others that would be disproportionate to any environmental benefit gained.

We do not see why an Australian, or an American, should have to shoulder more of the economic burden for emission abatement than a European. The economic costs to each should be the same. We believe that no one country should take on a disproportionate share of the burden.

Now, as Fred just mentioned in his introduction, Prime Minister Howard has taken up Australia's argument with other world leaders, including Chancellor Kohl of Germany, Prime Minister Hashimoto of Japan, Tony Blair in the U.K., and recently on his visit here with President Clinton. And Australia's message has been the same and it has been clear.

We are committed to a successful outcome at Kyoto, one that is not only environmentally effective, but which safeguards all our economic futures and takes into account the national circumstances of all participants. We are therefore very pleased that the recent Denver Summit, and the special session of the General Assembly on environment, did not result in any precipitous, last minute deals on uniform targets.

It strikes us that the communiqué language of both of those meetings signal that a long overdue sense of realism is beginning to creep into deliberations on climate change. And that the take it or leave it approach that the Europeans want to impose on the rest of us, irrespective of our individual, national circumstances, is simply not going to wash with others, including, I'm pleased to say, with the United States.

Having said that, and without going over too much of the same ground that I think Brian Fisher may have covered in your discussions this morning, I'd like to spend just a few minutes developing some of these points. And in particular I'd like to describe briefly our national circumstances and why they make us different from others, how that influences our negotiating position, why Australia argues for what we call differentiation, and finally, why the benefits that we think — finally, the benefits that we think the U.S. administration might be able to derive from the approach that we are advocating. And especially on the questions of emissions trading and getting developing countries on board, two crucial ingredients, I think, for a successful outcome in Kyoto.

Let me say, though, before going on, that Australian business is strongly behind the government on this issue. And the government itself if unified in its approach, with all those ministries having a direct interest in climate change pulling together in the national interest. And that gives us a strong sense of purpose and resolve in our approach to the climate change negotiations.

So let me take you through those four points that I just mentioned. First, why is Australia different? What explains the strength of our resolve and commitment that I just referred to? Australia's position stems from the fact that our national circumstances, our economic, our social, our environmental attributes limit the extent to which our priorities, concerns and interests parallel those of other developed countries. Australia's physical characteristics, the fact that we have a land mass one-and-a-half times larger than Europe, but with a vastly smaller population density, illustrates the stark differences between us and our OECD partners in Western Europe.

Australia has quite different sorts of environmental pressures. The speed with which our population is growing, relative to others, also differs. And we have abundant natural resources, including fossil fuels and minerals. And not surprisingly, because we do have such an abundance of those natural endowments, Australia is the world's largest coal exporter, the third largest aluminum exporter and one of the largest energy exporters amongst OECD countries. Our exports are energy intensive. In fact, our exports on average are twice as carbon intensive as the goods we import.

Australia's trade is also more and more defined by our growing economic ties with developing countries, particularly in the Asia Pacific region. Around half of our trade is with non-OECD countries and over 60 percent of our exports go to Asia. The picture that clearly emerges for us, and I would argue for many other countries, is of an economy that's responding to, and benefiting from the forces of globalization, by becoming increasingly specialized, particularly in energy intensive products. And such specialization, in my view, ought to be encouraged.

I'd argue, however, that if stringent emission controls are introduced in Kyoto, then many of these industries will relocate to non-OECD countries with no emission abatement commitments and less efficient, less environmentally sound technology. Such a possibility, frankly, is also very pertinent for the United States, because, like Australia, but unlike the countries of Western Europe, which principally trade with each other, the economies of, as I say, Australia and the United States have become increasingly interlinked with the dynamic economies of Asia and Latin America. The Western Hemisphere and the Asian Pacific Rim now account for nearly 70 percent of U.S. exports. And I understand, Latin America alone, if current trends continue, will exceed both Japan and Western Europe combined as an export market for U.S. goods by the year 2010.

Well, how does being different influence out negotiating position? All this means that we simply cannot accept what the Europeans want, which is a uniform 15 percent reduction, below 1990 greenhouse gas emission levels. To do so would be potentially very harmful for our domestic economy and for our international trade. The cumulative loss to the Australian economy by the year 2020 has been estimated at $150 billion and job losses would be in the tens-of-thousands. Looked at another way, we would end up losing more than we had gained in the outcome from the hard fought Uruguay round. Nearly eight years of trade negotiations would be wiped out in a single stroke.

The targets set by the European Union is unrealistic and unachievable, even for the Europeans themselves. Just consider for a moment how many EU members are actually going to meet the ambitious commitments they made at the original Earth Summit in Rio, five years ago. Remember, we are talking about a reduction in emissions levels to 1990 levels by the year 2000. And the answer is, probably two, the U.K. and Germany. But, in both cases, this is due to national circumstances, quite unrelated to greenhouse gas.

The U.K., because of its switch to natural gas, following the closure of its inefficient coal mines. And Germany because of the collapse of East German industry, following reunification. So the original Rio commitments are not going to be met, because they were never realistically based in the first place. Australia, like a majority of developed countries, cannot meet them. So the challenge for us, and for other OECD countries, is to learn from our experience and to come up with a credible plan of action to avert the global problem of climate change.

Now, what is such a credible plan? Well, Australia, as I've said, cannot accept the flat rate approach advocated by the EU. But, like others, Australia wants to play its part. We do not want a free ride. As the Australian Prime Minister has made clear, we have argued for what we call differentiation, because different countries are in different circumstances.

The EU member countries themselves, all 15 of them, have seen the virtues of this kind of arrangement, they'd accept a differentiation, internally, within the so- called “EU bubble,” where the emissions permitted range from minus 30 to plus 40, across the EU. They recognize that not all EU countries have the same capacity to reduce their emissions. Larger cuts by countries capable of doing so, are going to be traded off against those making smaller reductions.

The EU also accepts that the economies in transition, Eastern Europe and Russia, should have differentiated targets. So 27 out of the 35 Annex I countries are therefore to be allowed access to differentiated targets. We think it's manifestly unfair to deny the remaining eight Annex I countries, including the United States and Australia, access to differentiated targets. As Prime Minister Howard recently told his British colleague, all that Australia wants is to have the same capacity as individual members of the European Union have, to differentiate targets for greenhouse gas emissions.

Now, it's our contention that the Europeans seem to recognize the merit of this approach themselves, but not for others. And yet the experience inside the EU, the internal burden sharing arrangements, they've agreed to, suggest that differentiation is critical, if a sustainable solution is to be achieved So we believe that a differentiated approach is the way to go.

So, as I say, we think that a differentiated approach is the way to go, and we hope that the United States administration will come around to that view and support such an approach by the time we get to Kyoto. We think differentiation is the fairest and most equitable means for countries to sign on to, and to take domestic action to the extent that they are able.

Now, as I mentioned, there are two crucial ingredients in making such an outcome work, one is how we're going to transfer credits and one is how are we going to get developing countries involved? So of great importance, we see differentiation as an enticement for developing countries to eventually come on board. The rapid growth in developing country emissions, means that without them, and without their participation, developed country efforts to address climate change will simply be overwhelmed.

Australia's efforts in the current negotiations have concentrated on working to ensure that the Kyoto outcome builds a solid foundation for future agreements. An agreement which not only protects our interests, but can also accommodate all countries within the same framework. Differentiated targets would achieve that, and uniform targets would not. Differentiation provides the framework within which developing countries could make commitments, but in a way which would ensure that they are equitably negotiated, taking full account of their national circumstances and stages of development.

This approach we think is able, equitably and fairly, to account for the very wide divergences between developing countries themselves. For example, between China and between the Republic of Korea.

Let me say a few words, then, about emissions trading, especially in the light of the U.S. view, that to establish an appropriate regime at Kyoto, it needs to be underpinned by reduction targets that are legally binding. Australia has adopted a cautious approach to this issue. We support the U.S. concept in principle, because we recognize that emissions trading can provide greater flexibility in reducing emissions.

However, we are keen to know the basis for the initial allocation of emissions entitlements. Emissions trading could result in huge transfers of wealth. For example, uniform entitlements, based on 1990 emissions level would result in the countries of Eastern Europe being the chief beneficiaries. As this in effect would be rewarding them for their past inefficiency, many countries, and especially many developing countries, would regard such an outcome as unfair, particularly, frankly, as the wealth transfers are likely to dwarf aid flows.

Not only would countries need to resolve the issue of international allocation of emission entitlements, but individually we may also need to address the domestic allocation of emission credits. And that could involve questions such as would it be necessary to allocate emission entitlement at the state or sectoral, or industry or firm levels? Obviously, a central issue would be how to go about the task of establishing what criteria would form the basis of that allocation. Such an allocation would have an important implication for future economic activity within both national and state boundaries. And in our case a wide variation exists between our states, in relation to their current and future levels of energy consumption and emissions growth.

Those issues I think will become critical for us and for others as we approach the Kyoto outcome. And so we're urging other countries to examine those issues closely and to factor them into their approach, as they come to the conclusion of the Kyoto process.

Well, overall, we recognize — and I want to emphasize this, that Australia's approach to these negotiations has been different to others. The realization we came to early on was that for meaningful reductions in global greenhouse gas emission growth to be achieved, each country would have to take individual domestic action, to the extent that they were able. And their individual national circumstances would have to be taken into account. Australia, as I said, is not looking for a free ride. Rather, we're arguing for equality of effort.

No single country should take on a disproportionate share of the burden. And the fairest and most equitable means to achieve that is through a negotiated differentiation of country targets. That would provide a framework under which all countries, including developing countries, could eventually take on commitments appropriate to their level of development and economic structure, commitments that would lead to containment of emissions growth, while at the same time safeguarding our economic futures.

And that sums up, ladies and gentlemen, what we think would be a successful outcome from Kyoto. A result which allowed all countries to sign on, and then to take action, domestically, to the extent that they are able. Frankly, only an outcome based on cooperation, rather than coercion, can deliver a sustainable strategy. Dealing with the problem that we're talking about is going to take many decades. It's our view we should take the time and the trouble to get the approach right from the outset.

Thank you.

MR. SMITH: Thank you very much, Paul.

Paul has agreed to take a few questions. I guess, as a moderator, maybe I'll start. The — I think we all realize that in many ways the problems of the environmental policy in the United States are less that we're doing sensible things foolishly, than we're doing a lot of foolish things. And I guess, that leads us into the question of, is there any interest in — Senator Craig this morning, introducing ours, had some reservations about the trading system, along the same grounds you did. The amount of wealth transfers that might be incurred. He has — he did not state, but others have pointed out, it also gives vast moral authority to the political leaders of some countries who, at least on their basis of their current record, aren't necessarily the most trustworthy parties.

Kenneth Arrow, who has been in proposal of trading cap issues, suggested that the best way to ensure a trading system that would be equitable ad fair to the poor of the Third World, was to give a family allotment of energy credits to everyone in the world. Would you like to talk about the viability of a trading system in this kind of a society, especially with respect to the Third World.

MR. O'SULLIVAN: I think the short answer is, no. Well, I think that the issues of a trading system are complex. But, there are examples of trading systems working very efficiently, and producing good economic incentives and good environmental incentives — good environmental outcomes. So a priori I don't think a trading system is a bad idea at all. But, I think that the way in which the trading system is constructed is a crucial question and we just don't have the details yet.

MR. SMITH: Let's have some questions from the audience?

Over here.

Q: MALCOLM ROSS: Our aid to tropical African countries has not been very glorious and it does not seem to benefit these countries in any great way. Economically, they've gone the other way. Would the transfer of wealth on this energy scheme be any better?

MR. O'SULLIVAN: Well, any trading scheme — or any scheme which attempts grapple with the problem of imputed costs and transferred cost is going to have some effect on the recipients as well. I mean, that's unavoidable. I don't know whether you can argue that the trading, or credit system, or emissions trading system, is going to be any — inherently any more flawed than any other scheme. It depends entirely, like most of these schemes do, on the mechanisms for their establishment and their monitoring and so on. I just don't have a — sort of a demonic view about systems per se.


Q: RON BAILEY: Is there a point in the negotiating process that Australia might decide, we're not getting the result we like and we’re just going to withdraw from the whole process.

MR. O'SULLIVAN: That is possible. The prime minister has said publicly that at a certain point we may simply be forced to say, this is a deal we cannot accept. We don't want to reach that point. And I suppose, logically, we wouldn't reach that point until we saw what the result from Kyoto was. But, it's conceivable. And it's not something that we want to say, you know — we say very lightly, because it's fairly a ruthless thing to say in advance that you just might walk out on something. But, you know, at the end of the day governments can only survive if they implement policies which benefit the community in some broad, general sense.

So, you know, the prime minister has been straightforward in saying that it could come to that. Frankly, our diplomatic efforts at the moment are designed to try and avoid that by the sort of issues that I've just been canvassing, by spelling out what we think would be a reasonable outcome. And I think, as Fred said in his introduction, I think the international debate has been modifying.

MR. SMITH: Over here?

Q: (Inaudible.)

MR. O'SULLIVAN: There's a range to that question, actually. I mean, first of all —

MR. SMITH: The question was, given the type of information that's been seen in the comments, why should India and China, in particular, even be interested in discussing this issue? Why are they even showing up at Kyoto?

MR. O'SULLIVAN: First of all, by way of background, I guess everyone understands here that the framework convention has different obligations for different countries. And so what we're talking about here are differences between obligations that fall on Annex I countries, as distinct from those who are non-Annex I countries, such as India and China. The incentives for India and China to come on board could be precisely in the point I was making about the wealth transfers involved in trading credits. It's also the fact that those governments have the same considerations to take into account for the health and safety of their populations, as other governments do. It's also the case that, increasingly, there's evidence that good technology is efficient technology, which means that higher returns are to be achieved at lower costs and lower input costs, by utilizing up to date technology.

So there are many reasons why people who, running the systems in India and China, for instance, and in Russia would look very favorably at the opportunity to come on board the right sort of regime. If I can put it that way. It depends, of course, on the international community, then, to come up with the — with “right,” which is one which creates enough incentives for those countries to sign on. I can — I don't think that's at all the case. I mean, I think the assumption that China and India would simply never participate in a climate change regime is just not true.

MR. SMITH: It's also, as we were pointing out this morning, you recall, that to some extent, the people, the officials, this is a nation state, after all, there are officials representing that nation state, and to some extent environment matters have been in different ministries than economic and trade matters. And as those two begin to merge as the cost of — as the economic implications become more apparent, I'll think you'll see a gradual modification of some of the enthusiasms of some Third World nations.

I suspect in Australia, an environmental issue would have been dealt with differently 10 years ago, than it might be today.

MR. O'SULLIVAN: I think around the developed world, generally speaking — well, perhaps the whole world, but especially around the developed world, generally I think that's true. But, I think that's to do with the fact that there's been a decline since, you know, perhaps the mid- '70s, all this sort of engineering psychology, which prevailed amongst elites in the years after World War II. And, you know, around the United States and around Australia and around other OECD type countries there was a view 30 years after World War II that, you know, building dams and building roads and all the sorts of things which were taken as part of the ordinary background of life were great things to do. Since the mid-1970s there's been a shift in the psychology amongst elites about where those balances are struck. And I think that's not different in Australia from the United States or elsewhere.

MR. SMITH: I'm from Louisiana, when I grew up it was a moral duty to drain swamps. Now, it's a federal offense. So I know very much. How about one last question?

Roger, do you have a question?

Q: (Off mike.) Yes, as we approach Kyoto, the OECD seems to taking in four different major views, the EU, the U.S., Australia, and Japan. And I wondered if you could comment on the role that Japan might play, because it will certainly be a major force at Kyoto.

MR. O'SULLIVAN: Well, I think Japan has two imperatives, if you like. One is, the imperative of being the host and seeking hard to fashion a solution to the contending views. The other imperative it has is to defend and advance its national interests. And we have had — we continue to have extensive discussions with the Japanese, you know, at every level from Prime Minister Hashimoto down, and our view is that the Japanese are increasingly coming to understand that they — you know, that those imperatives have to be reconciled, that it's not good for Japan, it's not good for much of the rest of the international community if what's achieved at Kyoto is simply a headline one day, but not a sustainable outcome over time.

So I agree with you that Japan is a crucial player and our view is that we need to work closely with the Japanese in the run up to Kyoto.

Q: As a follow-up, could you speculate — you mentioned that the EU, you're just asking for the same flexibility for Australia and possibly other nations that the EU, internally, has already granted itself. I guess what, Portugal is going to be allowed a major increase.

MR. O'SULLIVAN: Plus 40.

Q: Plus 40, and other countries are going to have to make it up. Could you speculate why the European Union seems to be so unwilling to provide that flexibility to the other Annex I nations?

MR. O'SULLIVAN: I don't know the answer to that question, but I suspect that it's not just confined to this issue. My hunch would be that — I mean, if you look across Europe you see a rather ordinary set of economic performances and a set of major challenges to the economic managers in Europe. I assume that one factor in their thinking is this, you know, a way of helping to try and contain its national competition.

MR. SMITH: We promised Paul we'd let him go at 10 after. It is now 10 after. I think we owe him a thanks.

We talked earlier about the Dutch — I think it was Deepak about the Dutch with their finger in the dikes. At the moment Australia has all of the fingers that are in their dikes out there in this policy area, and we owe them a round of applause and thanks.